Paul Strassmann’s blog

Recent Indicators Worthy of Attention

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#172 The Bio Revolution

A confluence of advances in biological sciences—decades in the making—with the accelerating development of computing, automation, and artificial intelligence (AI), is fueling a new wave of innovation that could have significant impact on economies and societies, from health and agriculture to consumer goods and energy. These new capabilities and applications are already improving our
response to global challenges from climate change to pandemics; at the time of writing this report, they were being used to help respond to the COVID‑19 pandemic. But these innovations come with profound risks, arguing for a serious and sustained debate about how this innovative wave should proceed.

Alipay is a super app designed to offer a bouquet of services to bring
convenience into your everyday life. Trusted by more than one billion global
users, Alipay’s offerings span from allowing its users to make payments (send,
receive, and spend money with ease), manage finances, choose a suitable
insurance scheme, hail a cab or even order in from a favorite restaurant.

1. Send/Receive money from your peers;

2. Transfer money to friends or split the bill at your favorite
restaurant;

The Price/Earnings ratio of shares influences the value of US
stocks. This determines whether investments could be overpriced or underpriced.

We have collected a series of data from 1970 through 2019
for market capitalization[1],
GDP and expected profitability:

Starting from 1970 the Market Cap to GDP ratio continued to
be under 100%. The expected profitability was also running at a rate of 10% or
better.

In recent history the Market Cap to GDP ratio always exceeded
100% while the expected profitability became negative.

Such disparity can be seen in the differences in the
1970-2019 growth rates. The Market Cap grew much faster at +3721% as compared
with the growth of the GDP of only +1946%.

The December 2019 Market Cap exceeded the GDP by $10
Trillion. Since a GDP reflects the earning capacity of the US economy, an
estimate of market overpricing can be calculated as a percent share of the GNP,
which is $22 Trillion. The overpricing of the stock market is then +45%. In
case the US debt may have to be discounted, the suggested overpricing may be too
optimistic.

Conclusion:

The high valuation of the Market Cap to the GDP ratio reflects
an optimistic view of the worth of the US shares. At present, such views show at
least a 45% overpricing of shares.